Money Is An Extinguishable Asset
Gopalan Ramachandran
CreaSakti is an ally of the Indian economy. Building the five-trillion-dollar economy is our focus.
Money has been held in very high esteem across time, cultures and works of fiction. Money has caused happiness and prosperity. Money has caused anxiety.
?
Money has caused agony. Money has caused ecstasy. Aggression and heists have followed the desire to own money.
?
Money runs society. Money runs government. Money runs banking and businesses. But what runs money? What does money run on? Is money an absolute that has to hold us all in thrall?
?
The answers: First, money is not an absolute. Money has no prior existence. Money is an outcome of human effort – physical and intellectual.
Second, money enables us to use our best competence to serve others. Third, money enables others to use their best competence to serve us.
?
Fourth, thereby, money enables each one of us to specialise. Money then makes us all more productive. Fifth, money makes us all more prosperous because the sum of the parts is greater than the whole.
?
Exchange and extinguishable IOUs
?
“Money Is An Extinguishable Asset” is the eighth in CreaSakti’s sovereign digital money (SDM) series. This part has many economic and philosophical objectives.
?
In the absence of our effort and in the absence of our desire for someone else’s effort, money possesses no skill and competence. Money in our physical and digital wallets will not bake a walnut cake. Money in our banks will not get us a banana split sundae. Money will not serve us a masala dosa.
?
We will go to my alma mater for the masala dosa. The canteen at the College of Engineering Guindy (CEG) in Chennai (earlier known as Madras) possesses the human capital, the raw material and the equipment to make masala dosa. The CEG canteen is in the business of converting matter and energy into tasty, nutritious food. The CEG canteen is a specialist in making and serving food.
?
Think of the days before January 2020. We go to the CEG to sit in lectures. We go to the CEG to conduct experiments in one of the many well-equipped laboratories.
?
We need nourishment and a break from time to time. We have the desire to eat masala dosa. It is magical. The canteen is magical. We get new ideas to verify our hypotheses and our test results. We meet friends. We pay to get all of these.
?
An IOU
?
We pay for all of these. We buy a plastic blue token at the cashier’s counter. The cashier receives our payment. The cash – digital or physical – goes into the cashier’s receipt. It is the canteen’s revenue.
?
The blue token is proof that we have paid. The blue token is an “I owe you” (IOU). The IOU is valuable to us. The plastic blue token is our asset.
?
The plastic blue token is the CEG canteen’s liability. The principles of double-entry bookkeeping work at the moment the absorption of value takes place.??
The IOU is the CEG canteen’s liability. The canteen is now obligated to serve us a masala dosa. We then exchange the IOU for the masala dosa.
?
Once the exchange has been completed, the IOU returns to the cashier. The masala dosa is ours. We eat it. The digital cash or the physical cash that we paid is the CEG canteen’s revenue. It pays for its expenses from the revenue.
?
Dormant, valuable, dormant
?
The blue token’s round trip begins at the cashier’s counter. It is almost dormant while it is in the cashier’s counter. Its value is the sum of the values of (1) the plastic and (2) the effort to inscribe “CEG Masala Dosa” on it.
?
Each plastic blue token then acquires the value of one masala dosa when we buy the token from the cashier. We generate its value. We endow value upon it.
?
The plastic token is now in our hand. We then give it away at the kitchen delivery window. There is an exchange. We get the masala dosa. The kitchen gets the plastic blue token. What this means is that the value of the masala dosa has been transferred to us.
?
The blue token, thereby, loses its value. It is once again dormant. The kitchen clerk then sends the blue token back to the cashier. That is the end of the round trip.
?
The blue token is loaded with value for a part of its round trip. Its tasks are to absorb value, transmit value and discharge value. Once these tasks have been accomplished, its value is extinguished.
?
Thereafter, the plastic blue token is no longer our asset. The plastic blue token is no longer the CEG canteen’s liability. The principles of double-entry bookkeeping work at the moment the value discharge takes place.??
?
?
This cycle goes on and on until the token is worn out. The CEG canteen then replaces the old worn-out token with a new token.
领英推荐
?
CEG, Amana and Chola dynasty
?
The CEG canteen in modern-day India, the Amana colony of nineteenth-century United States of America, and the Chola dynasty of ancient India provide three different examples of IOUs. They provide different examples but have the extinguishable value of IOUs as the common theme.
?
Please read my seventh article in the SDM series “Centralised Creation, Centralised Certainty”.
?
The CEG canteen centrally creates the plastic blue token. The blue token does a round trip. It gains value at the beginning of every round trip. It loses value at the end of every round trip. Then it makes one more round trip. This repeats until the token is withdrawn many months or years later.
?
The Amana colony authorises the bilateral creation of “farmer IOU”, “blacksmith IOU” and “brickmaker IOU”. These IOUs are written on paper. They too make round trips. They too lose value when they return to the farmer, the blacksmith and the brickmaker.
?
The farmer delivers grain. The farmer’s liability is extinguished. The farmer IOU can now be torn.
?
The blacksmith repairs a plough. The blacksmith’s liability is extinguished. The blacksmith IOU can now be torn.
?
The brickmaker delivers bricks. The brickmakers’ liability is extinguished.?The brickmaker IOU can now be torn.
?
The farmer, the blacksmith and the brickmaker can choose to withdraw the respective IOUs at the end of any round trip.
?
Cholas’ central and multilateral coinage
?
The Chola dynasty minted metal money almost two millennia ago. The sovereign rulers centrally issued these multilateral IOUs. The gold, silver and copper coins were assets in the hands of the citizens.
?
Every asset has a corresponding liability. This is the logical rule of double-entry bookkeeping. The corresponding liability in the context of the Chola coins was that of the Chola monarch.
?
The Chola coins could be used to pay taxes to the Chola monarch. Citizens were required to pay land tax and trade tax. Taxes payable were the liability of the citizens. The coins were the assets of the citizens. Citizens could extinguish their tax liability by paying out the coins to the Chola treasury.
The coins then returned to the monarch’s treasury. The asset’s value was thereby extinguished. The Chola monarch's liability was cancelled. There was no IOU thereafter. The coins could be withdrawn.
?
The Chola monarch could, of course, reissue (reuse) the Chola coins to pay for the upkeep of the government. The Cholas had a sophisticated system of canals for infrastructure. They had irrigation locks. They had a maritime fleet. The Chola monarch could pay for the capital investments, the maintenance and the operation of these by using its coinage.?
Chola citizens used the Chola coins as multilateral legal tender because the Chola monarch and the treasury were liable to honour the face value of the coins. The Chola coins were, hence, valuable while they were in circulation. The liability of the Chola monarch to accept the coins made the coins valuable.
?
Paper, plastic, metal, digital
?
Money has no pre-existence. It emerges as the result of an issuance. Money has no physicality. However, capturing money’s value on paper, on plastic, on metal and on a digital device makes it convenient for us to hold it as an asset. For every asset, there is a corresponding liability. The issuer is liable for backing the value of money.
?
Capturing the value on paper, on plastic, on metal and on a digital device makes it convenient for us to transact. Capturing the value on paper, on plastic, on metal and on a digital device makes it convenient for us to count it and account for it.
?
Paper, plastic, metal and digital are four possible media to create, capture, transmit and discharge value. The Chola dynasty used metal. Plastic, paper and digital did not exist two millennia ago.
?
Citizens of Amana used paper to write their IOUs. Metal was heavy. Paper was light. Words and numbers could be written on paper with ink. The issuer could write a name and sign the IOU.
?
The CEG canteen uses plastic because metal is heavy. Why? Paper gets wet. Plastic is light and waterproof. Metal is heavy.
?
Digital media and encryption together possess superb properties. They are lighter than paper, plastic and metal. They are waterproof. They are tamper-proof. Blockchain technology is an enabler.
?
Here are two questions to end this part of SDM. First, how many IOUs should a canteen and an economy create? Second, how much money should a canteen and an economy expend towards creating the IOUs?
?
?